Pound Sterling weakens as UK Retail Sales contract at faster-than-expected pace

• The Pound Sterling faces a sharp sell-off as UK Retail Sales declined at a faster-than-projected pace in October.
• Weak UK Retail Sales data could boost BoE dovish bets for December.
• Investors await the flash S&P Global PMI data for both the UK and the US.

The Pound Sterling (GBP) weakens against a majority of its peers, except Asia-Pacific currencies, as the United Kingdom (UK) Retail Sales data for October contracted at a faster-than-expected pace. The British currency trades near 1.2550 against the US Dollar (USD) in Friday’s London session, a six-month low.

Retail Sales, a key measure of consumer spending, declined by 0.7% compared with the previous month. In September, sales increased by a marginal 0.1%, downwardly revised from the 0.3% previously reported. Year-on-year, Retail Sales grew by 2.4%, less than the estimates of 3.4% and the former release of 3.2% (downwardly revised from 3.9%).

Weak Retail Sales data is expected to boost expectations of interest-rate cuts by the Bank of England (BoE) in the December meeting as they highlight weakness in consumer spending, a key growth factor for the UK economy.

Still, for now, traders expect the BoE to leave interest rates unchanged at 4.75% not only in the December meeting but also in the one to be held in February. This is because UK inflation data came in hotter than expected in October, with services inflation – a closely watched inflation indicator by BoE officials for decision-making on interest rates – rising to 5%. 

Investors should brace for more volatility in the British currency as the flash S&P Global/CIPS Purchasing Managers’ Index (PMI) data is scheduled to be published at 09:30 GMT. The Composite PMI is expected to come in at 51.8, unchanged from the previous month, suggesting that the country's private-sector activity continued to expand. Investors will also focus on the impact of the Labour Party’s first budget on business sentiment.

Daily digest market movers: Pound Sterling refreshes six-month low against US Dollar

• The Pound Sterling posts a fresh six-month low near 1.2550 against the US Dollar (USD) in Friday’s London session. The GBP/USD pair extends its downfall after weak UK Retail Sales data. However, the Cable was already under pressure as the US Dollar (USD) strengthened due to lower-than-expected United States (US) Initial Jobless Claims for the week ending November 15.
• Individuals claiming jobless benefits for the first time surprisingly came in at 213K, lower than estimates of 220K. Lower jobless claims help to ease concerns about the labor market. However, the report also showed that individuals were taking longer-than-usual to find new jobs.
• The outlook of the US Dollar has remained firm on expectations that there will be fewer interest rate cuts from the Federal Reserve (Fed) in the current policy-easing cycle. Market expectations for the Fed to adopt a more gradual policy-easing approach have strengthened as investors believe that the economic agenda of President-elect Donald Trump will boost inflationary pressures and economic growth, a scenario that will force the Fed to remain cautious on interest rates.
• On Thursday, Richmond Fed Bank President Thomas Barkin said in an interview with the Financial Times (FT) that the economy is more vulnerable to inflationary shocks as producers are passing on costs to customers more than in the past, Reuters reported. "We're somewhat more vulnerable to cost shocks on the inflation side than we might have been five years ago,” Barkin said.
• In Friday’s US session, investors will focus on the preliminary S&P Global PMI data for November, which will be published at 14:45 GMT. Investors will pay close attention to the PMI data to get fresh cues about the current status of economic health, and the impact of recent Fed rate cuts and Donald Trump’s victory on business sentiment.

Technical Analysis: Pound Sterling sees more downside near 1.2550

The Pound Sterling slides to near 1.2550 against the US Dollar on Friday, extending losses for a third consecutive trading day. The GBP/USD pair's outlook has turned bearish given that all short-to-long term Exponential Moving Averages (EMA) are sloping down.

The 14-day Relative Strength Index (RSI) remains in the 20.00-40.00 range, suggesting that a strong bearish momentum is intact.

Looking down, the pair is expected to find a cushion near May’s low of 1.2446. On the upside, the November 20 high around 1.2720 will act as key resistance.